Synopsis:

CIBC sees today’s stronger-than-expected US CPI report reinforcing the Fed’s decision to remain on hold. Both headline (0.5% m/m) and core CPI (0.4% m/m) exceeded expectations (0.3%), driven by higher shelter, transportation services, and a surge in used car prices. With annual inflation now at 3.0% (headline) and 3.3% (core), this report weakens the case for near-term rate cuts.

Key Points:

1. CPI Accelerated More Than Expected

   • Headline CPI: +0.5% m/m (vs. +0.3% expected)
   • Core CPI: +0.4% m/m (vs. +0.3% expected)
   • Annual Inflation:
     • Headline: 3.0% (vs. 2.9% expected)
     • Core: 3.3% (vs. 3.2% expected)

2. Drivers of Inflation

   • Core services inflation rose to 0.5% m/m, reflecting:
     • Shelter price increases
     • Higher transportation services costs
   • Core goods inflation rebounded, led by:
     • A sharp rise in used car prices
   • Higher grocery prices contributed to headline CPI strength

3. Implications for the Fed

   • The hot CPI print supports the Fed’s cautious stance on rate cuts.
   • Market expectations for early 2025 rate cuts could be further delayed.

Conclusion:

CIBC sees the strong January CPI print as a key validation for the Fed’s decision to stay on hold. With inflation pressures still elevated, the probability of a March rate cut is now even lower.